About Insight

SAN DIEGO –Â Rady Children’s Hospital is in the process of establishing an accountable care organization to manage treatment for children with significant medical needs.

The San Diego-based hospital is one of five California health care organizations chosen to participate in a pilot project with the Department of Health Care Services to treat children who are part of the California Children’s Services program. CCS provides care for children, up to age 21, who have a number of serious medical conditions, including hemophilia, cerebral palsy, cancer, cystic fibrosis and heart disease.

The other organizations launching pilots are Children’s Hospital of Orange County, L.A. Care Health Plan, Health Plan of San Mateo County and Alameda County Health Care. All five organizations will test care models such as ACOs, enhanced primary care case management and an existing Medi-Cal managed care organization system. Medi-Cal is California’s Medicaid program.

Each pilot is slated to run for three years, with the possibility of a two-year extension. Pilots are expected to begin sometime between January and June next year. The six-month period will be used to develop, review and approve the pilots’ operations, according to Louis Rico, division chief of Systems of Care for DHCS.

San Diego Pilot Aims for Better Care Coordination

Currently, more than 13,000 children are eligible for CCS services in San Diego County. Under a yet-to-be-finalized contract with DHCS for the pilot project, Rady Children’s Hospital would manage and coordinate the care for 600 children with one of three chronic conditions: cystic fibrosis, hemophilia or sickle cell anemia.

The primary goal of the pilot program is to improve care coordination for CCS-enrolled children in San Diego, most of whom already receive care from Rady Children’s Hospital or an affiliated health care provider.

Although the pilot projects are expected to reduce health care spending, Rico said cost was not the primary driver of the San Diego program and the other regional pilots.

“We would like to see efficiencies that improve the general state fund, but that’s not the primary goal. The primary goal is to improve health outcomes and improve health care coordination among the population,” he said.

Testing the ACO Model

Rady Children’s Hospital is moving forward with its ACO, having recently taken a number of steps to solidify contracts and set up a reimbursement model with participating physician groups, according to Barbara Ryan, the hospital’s vice president of government affairs.

The ACO model made sense for Rady, given the needs of the CCS population and the fact that it’s the only children’s hospital in San Diego County, Ryan said. In addition, the hospital has established relationships with both specialists and primary care physicians.

“With ACOs, it’s all those different groups coming together and agreeing to a single reimbursement and then how payment will be divided. There’s a lot of work to be done, but we’ve also done a lot so we’re well positioned,” she said.

The ACO arrangement will attempt to address CCS’ split payment system. That system, according to Rico, often creates complexities and fragmentation in care, as well as disputes about who pays the bills.Â

The split payment system results from the fact that some CCS children are also enrolled in Medi-Cal managed care plans, which provide primary and preventive care. When such children seek specialty care for the condition that qualifies them for CCS, that care is provided outside of the health plan’s network through a carve-out arrangement and is reimbursed on a fee-for-service basis.

“We now see in many instances a real challenge in coordinating care between the health plans who are providing primary preventive care and the specialty health providers who are providing care for the CCS health condition,” Rico said.Â

“What we believe is that it is in the best interest of the kids for them to receive all their care in a coordinated way,” said Ryan.

ACOÂ Approach Building Steam

As an outgrowth of the Patient Care and Affordable Care Act of 2010, interest in ACOs has grown. In order to qualify for certain incentives, the law requires formation of ACOs. A recent white paperÂ produced by Leavitt Partners’ Center for ACO Intelligence found that there are currently 164 ACOs throughout the U.S., two-thirds of which were founded by hospitals.

The existence of ACOs varies greatly by region, with poorer and more rural areas showing little growth, according to the white paper. California leads the nation in number of ACOs — 17 in total. The ACOs were founded by a mix of hospitals, independent physician associations and insurers. Â

“There is an urgency that is catalyzing the formation of [ACOs] in spite of not really knowing what the rules of the game will be,” said Andrew Croshaw, managing director of Leavitt Partners. The urgency, according to Croshaw, stems from the health care system generally recognizing that “in this economic climate there’s going to be downward pressure on payments and there will be winners and losers in the future.”

Establishing an ACO will allow Rady Children’s Hospital to position itself for changes that will come from the federal health reform law, as well as other regulatory action and market dynamics.

Economic pressure is causing more states, including California, to move their most expensive beneficiaries into some type of managed care environment, according to Croshaw.

“States are moving toward integrated care because they recognize that there just isn’t going to be the money in health care and that will specifically play out in state Medicaid programs,” he said. Private payers and Medicare also will be affected.

Measuring for Success

Rady Children’s Hospital’s ACO will be subject to ongoing evaluation to determine its impact on the care and associated costs of CCS children.

DHCS will work with a third party to evaluate the hospital’s effectiveness. According to Rico, the department is considering UCLA Health Policy Research to do that work with the support of the CCS Demonstration Evaluation Advisory Committee, an advisory committee of representative members from the CCS community.Â

Rico said Rady Children’s Hospital will be judged in part on the nature and cost of services provided to CCS children, whether it improves the coordination and value of care, if it has been able to slow the rate of expenditure growth and improved provider and parent satisfaction with the care provided.

Unknown Future of ACOs

Although more than 60% of existing ACOs are founded by hospitals, there are questions about whether hospitals are the best suited for the ACO model.

“It’s far more difficult for hospitals to transition to a population-based care model than it is for a health insurance plan,” Croshaw said. “They’ve lived in a world for a long time where success was based on getting people in the hospital, not keeping people out of the hospital,” Croshaw said.

Ryan is confident, however, in her hospital’s ability to thrive. “In terms of business models and how we’ll fare if kids aren’t in the hospital I think we’ll be OK. We view ourselves as an organization that wants to keep kids healthy.”

Regardless, according to Croshaw, a hospital system that has established a larger network of physicians in its efforts to establish an ACO has substantially increased its leverage in negotiations with payers.

“They’ve sort of got that as a fall back even if this ACO movement doesn’t take hold,” Croshaw said.

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State Pilot Prompts Children’s Hospital To Form ACO

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